The yield gap widened during the second quarter of the year as investors continued their flight-to-quality, latest analysis from IPD/ARAS has shown.
Weakening secondary prices drove average yields out to 6.9% in the three months ended June, from 6.76% in Q1, with buyers moving away from poorer quality property and less secure income streams.
However, year-on-year, prime yields remained fairly static, shifting from 5.16% in Q2 2009 to 5.14% in Q2 2010. Conversely, secondary yields moved out marginally from 8.64% to 8.66%.
Retail yields showed the greatest movement during the year, shifting from 7.03% in Q2 2009 to 6.86% in Q2 2010. Bank stock yields also showed a marked change, hardening from 5.93% in 2009 to 5.45% this year.
Covenant strength and lease length continued to affect values in Q2, driving down yields on shops let for 20 years from 7% a year earlier to 6%.
Yields on investments with short leases softened between Q2 2009 and Q2 2010, from 6.25% to 6.47% (see graph below).
Jimmy Bell, associate director at Jones Lang LaSalle, said: “People don’t want less than five years, so prices have fallen. If a short lease expires over the next three to five years they are worried rents will fall or that they may struggle to get properties relet.”
The IPD/ARAS data also showed that just over one in four lots (26%) sold for yields of over 8% in the last quarter, down from a high of 41% in Q1 2009.
The figures also reveal a small decline in success rates, dropping from 73% to 70%.
And despite an increase in volumes of stock being offered through auction – rising from 276 in Q2 2009 to 293 in Q2 2010 – sums raised during the last quarter fell by £10m on the same period in 2009 to total £90m.
estelle.maxwell@estatesgazette.com
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